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MBA 706, Investments,
Syllabus, Fall 2020

Prof. Alexander Philipov
Enterprise 120A
(703) 993-9762

Last modified: September 22, 2020 *
Online address of this syllabus:

Meeting Schedule

Class meetings and locations
CRN Subj Crse Sec Title Days & Time Date (MM/DD) Location Office Hours
16805 MBA 706 001 Investments W 7:20pm - 10:00pm 08/19-10/09 Fairfax: Buchanan 001 By appt: Book

Course Description and Objectives

This course is about portfolio management and asset pricing. The material focuses on institutional investing, although the course is also relevant for individuals. The class aims to provide an understanding of strategies and risk management tools necessary for the management of fixed income and equity portfolios. In particular, the class material covers asset allocation, risk and return trade-offs, diversification, asset pricing, portfolio performance evaluation, and the theory of market efficiency. Upon successful completion of this course students will be able to (1) evaluate and explain the risk and return trade-offs in finance and (2) conduct research necessary to construct, manage, and evaluate equity/fixed income portfolios and evaluate their performance.


Completion of MBA core or permission of instructor. Prerequisite enforced by registration system. Students are expected to be familiar with basic economics and statistics.

Course Materials

Exams and Grading

The course grade will be based on a score of 1000 points. The grade distribution is as follows: 930-1000 (A), 900-929 (A-), 860-899 (B+), 800-859 (B), 700-799, C. The final grade will be based on a set of practice problem sets (total of 200 pts), a team project mainly developed in class (five parts totaling 600 pts) which will require teams to set up, manage, and evaluate the performance of a diversified portfolio, a Bloomberg Portfolio Management tutorial (150 pts), and class participation (50 pts).

The problem sets will have a carefully selected number of questions and will be administered online on Blackboard. You will be able to access each problem set within a specified period of time and will be able to work on it at your convenience. You will also have an opportunity to work on some of the problems in class.

For the in-class project, you will join a team. The first task in the project is to examine an existing portfolio through Bloomberg. You will consider this benchmark portfolio to be a passive investment choice available to your clients. You and your team will put together a portfolio which is similar to the benchmark (has the same asset classes). However, you will actively manage this portfolio, performing asset allocation, stock selection, and portfolio performance evaluation tasks. Your goal will be to outperform the benchmark fund. You will be doing quantitative and qualitative analysis using one or more of the following applications: Python, Office365 (the MS cloud) docs, Google sheets, Bloomberg. In Bloomberg, you will extensively be using the PORT analysis tool. You will present your results in class. More details about the project are available through the web links in the class schedule table.

Another component of the grading will be Bloomberg Market Concepts (BMC), a Bloomberg tutorial. Very recently, BMC has been divided in three sections for a more customized experience: Core Concepts, Getting Started on the Terminal, and Portfolio Management. I have made the BMC Portfolio Management tutorial a part of this course. When you sign up for it, use the following code: BS24PLTCZ6. Upon completing this tutorial you will receive a certificate.

Grade Allocation
Problem Sets 20%
Portfolio Project Unit 1 12%
Portfolio Project Unit 2 12%
Portfolio Project Unit 3 12%
Portfolio Project Unit 4 12%
Portfolio Project Unit 5 12%
BMC Portfolio Management tutorial 15%
Participation 5%

Honor Code

By registering for this class, students agree to abide by the honor code, which describes the standards of conduct, academic violations, and the treatment of academic offenses. The Honor Code states that all students "pledge not to cheat, plagiarize, steal, or lie in matters related to academic work." Visit the Full Honor Code to read more about the GMU academic integrity code. School of Business Honor Code guidelines are posted at the end of this syllabus.
Class Schedule
Wk Date Class Topic Related Course SLO Learning goal for class Learning value Related AT Related LST   Prep or Feedback
1 Aug 19 Risk and Return (Slides) Understand the different 'incarnations' of return (expected, historical, arithmetic and geometric mean, annual percent rate, effective rate )

LO5-1 Understand interest rates and compute various measures of return on multi-year investments.

LO5-2 Use data on the past performance of stocks and bonds or scenario analysis to estimate expected returns and standard deviations. Compute and compare arithmetic and geometric mean returns.

Essential to describe financial performance and wealth generation. This is how investors make expectations. Needed for comparing investment choices. Table 5.1 (excel) pr7.15 (excel)
Spreadsheet 5.1 (excel)
Spreadsheet 5.2 (excel)
Excel Return Data Ch.5– compare with the historical performance reported in BKM Table 5.4
BB PS1 Q1[1] BB PS1 Q2
Slides 1–19
Slides 20–33

Understand what the meaning of risk is in finance

LO5-3 Understand the normal distribution and how VAR is related to it. Understand and evaluate different measures of risk.

LO5-4 Use the Sharpe ratio to evaluate the investment performance of a portfolio and provide a guide for capital allocation.

The normal distribution helps us estimate probabilities and assess risk
Slides 35–57
Slides 57–64 are optional.
Aug 26
Plan for Part 1 of the Project

Work with real financial data
-Collect financial data from online sources.
-Compute holding period returns.
-Manipulate financial data in excel
-Compute and describe summary statistics
-Compute expected return and risk measures
-Plot and explain risk return-tradeoffs

Corresponding project items:
-items 1-5
-items 6-7
-items 8-10
-item 11
-items 12-17
-items 11ab,13

3 Sep 2 Capital Allocation to Risky Assets Understand the finance concept of utility
Learn how to evaluate different investment options.

LO6-1 Estimate or infer risk aversion, compute utility values of investment choices

LO6-2 Be able to compute the investor's allocation in one passive risky portfolio and a risk-free asses. Use and construct the Capital Allocation Line.

It shows how investors make choices
pr6.4 (excel)
pr6.10-12 (excel)
pr6.5 (excel)
pr6.13 (excel)
pr6.21 (excel)
pr7.16 (excel)
Solve P2 Q9
Slides 1–14

LO6-3 Determine the optimal position in the complete optimal portfolio. Build indifference curves.

LO6-4 Determine the equivalence of two risky choices, as well as their certainty equivalent. Understand diminishing marginal utility.

pr6.14-19 (excel)
pr6.22 (excel)
pr6.24 (excel)
pr6.26 (excel)
tb6.6 (excel)
pr6.29 (excel)
Solve BB P2 Q1–3, Q5, Q8
Solve BB P2 Q4, Q7
Solve P2 Q6
Slides 15–27
Slides 28–52
4 Sep 9 Project part 2

Determine investor choices among the 9 ETFs
-Use a questionnaire to infer investor risk aversion
-Determine if some ETF dominate others using the MV criterion
-Compute investor's utility from the individual risky assets
-Compute the indifference curves for the investor
-Add a risk-free asset and determine the best CAL
-Determine the optimal complete portfolio

Corresponding project items:
-items 1-2
-items 3-4
-item 5
-item 6-7
-items 8-9
-items 10-13

5 Sep 16 Optimal Risky Portfolios Understand the power of diversification

LO7-1 Calculate covariance and correlation. Compute portfolio mean and variance.

LO7-2 Show how covariance and correlation affect the power of diversification to reduce portfolio risk.

LO7-3 Calculate the optimal risky portfolios and construct the efficient frontier.

LO7-4 Add the risk-free asset to the set of efficient portfolios and determine the optimal complete portfolio

pr7.4 (excel)
pr7.5 (excel)
pr7.7 (excel)
pr7.8 (excel)
pr7.9 (excel)
pr7.12 (excel)
Slides 1–8
Slides 9–15
Slides 16–21
Slides 22–40
Slides 41–57 are optional
6 Sep 23 Project part 3

Estimate the efficient frontier with the 9 ETF portfolios
-compute correlation and covariance matrices
-compute portfolio expected return and standard deviation
-determine optimal weights for a target standard deviation
-identify the global minimum variance portfolio
-find the optimal risky portfolio (one that maximizes utility)
-add the risk-free asset and find the overall optimum portfolio
-describe the overall optimal portfolio (weights, E(r), sd, SR, etc.)

Corresponding project items:
-items 1-2
-item 3
-item 4
-item 5
-items 6-8
-items 9-13
-items 14

7 Sep 30 The Capital Asset Pricing Model (CAPM) Understand that only systematic risk is priced

LO9-1 Use the implications of capital market theory to estimate security risk premiums.

LO9-2 Construct and use the security market line.

We can value stocks. We can identify mispriced stocks

Project part 4

Asset pricing with the CAPM
-perform regression analysis to estimate the CAPM beta
-plot returns and the characteristic line
-estimate required return using the CAPM
-value a stock using a dividend discount model
-Apply security selection to the portfolio

Corresponding project items:
-items 1-4
-items 5-7
-items 8-11
-item 12
-item 13

BB P4Q7–9

Oct 7
Portfolio Performance Evaluation

LO24-1 Compute risk-adjusted rates of return, and use them to evaluate investment performance.

LO24-2 Determine which risk-adjusted performance measure is appropriate in a variety of investment contexts.

Excel Template and Solutions Ch.24

Bloomberg Webinar Slides on PORT

LO24-3 Apply style analysis to assess portfolio strategy.

LO24-4 Decompose portfolio returns into components attributable to asset allocation choices versus security selection choices.

LO24-5 Assess the presence and value of market-timing ability.

Excel Performance Measurement Ch.24

Project part 5

Performance evaluation
-evaluate out-of-sample excess return and risk
-evaluate correlations with benchmark
-perform regression analysis of portfolio returns on benchmark
-estimate performance measures

Corresponding project items:
-items 1-2
-items 3-4
-items 5-8

[1] You need to be logged in Blackboard to access this link

School of Business Recommendations for Honor Code Violations

Proposed Spring 2016

Graduate Students

Type of Violation

First Offense

Second Offense

Plagiarism, lying, cheating on an assignment, homework, or including other’s work as your own

An F in the class

An F in the class and dismissal from program

Egregious Violation [e.g., stealing an exam; passing on confidential course material; cheating on an exam, project, or otherwise violating specified rules for an exam or project; etc.]

An F in the class and dismissal from program

An F in the class and dismissal from program

* This syllabus is subject to change to best fit the needs of the class.